Bombardier puts Q400 plant in Russia on hold

Company has set aside plans for a $3.4 billion deal to build turboprops in Russia due to political situation and economy

Bombardier Inc. has put on hold a $3.4 billion (U.S.) plan to build up to 100 Q400 turboprops in Russia due to the political situation there.

“We are not moving ahead because the conditions are not right at this point in time for a joint venture in Russia,” said Bombardier president and CEO Pierre Beaudoin on a conference call with reporters on Thursday.

In 2013, Bombardier signed a letter of intent to sell Russia’s state-owned Rostekhnologii, known as Rostec, 50 Q400 turboprops with the possibility of another 50.

As part of the deal, Bombardier said it would work toward establishing a final assembly plant in Russia for the Q400 planes. A definitive agreement had been expected to be signed this year.

“It’s been pushed back to at least 2015,” Beaudoin said. “Given the political situation and the economy in Russia, we are setting this project aside for the time being.”

Canada has been a vocal critic of Russian president of Vladmir Putin over Russia’s annexation of Crimea and arming of rebels in Ukraine’s east. Canada joined the European Union and the United States in imposing sanctions on Russia.

Beaudoin said that even though the assembly plant is on hold, Bombardier still believes Russia is a good market for the turboprop and is talking about ways to sell the plane there.

His comments came after Bombardier, which reports in U.S. dollars, announced third-quarter earnings that beat analysts’ forecasts.

Revenues, which include both plane and train divisions, totalled $4.9 billion for the quarter, compared to $4.1 billion for the same period last year, an increase of 20 per cent excluding currency impacts.

Net income totalled $74 million, or 3 cents per share, compared to $147 million or 8 cents for the same period the previous year. On an adjusted basis, net income amounted to $222 million, or 12 cents per share, compared to $165 million, or 9 cents per share, in the same period the previous year.

The company also said 2,000 layoffs in the aerospace division and 900 layoffs in the transportation division as part of restructuring efforts would eventually bring $200 million savings in aerospace and $68 million in transportation.

The company also reiterated its view that development of its CSeries plane remains on track, with entry into service still expected in the second half of 2015.

The plane, which is designed to take Bombardier from a small regional jet player into the larger commercial jet market, has suffered delays, including an engine fire in May.

The flight test program resumed in September, and so far there have been 450 flight test hours.

After first flight last year, Bombardier said it anticipated 2,400 flight test hours would be needed before certification, raising questions from analysts on how everything could be completed on the current timelines.

“Flight hours are always a guideline. What is important for us is that we accomplish certain tests to certify the aircraft,” Beaudoin said. “So if we can do it in less flight hours, the better it is, because it will cost less money.”

He added that the number of flight hours required could vary substantially.

Bombardier still expects its smaller CS100 aircraft to enter service in the second half of 2015 with the larger CS300 aircraft to follow about six months afterwards.

Beaudoin anticipated gradual hiring of staff for the assembly of the CSeries in Montreal to begin in the second quarter of 2015.